Gantos, Inc.

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Gantos, Inc.

3260 Patterson Southeast
Grand Rapids, Michigan 49512
U.S.A.
(616) 949-7000
Fax: (616) 949-5884

Public Company
Incorporated: 1932
Employees: 2,106
Sales: $192.8 million (1995)
Stock Exchanges: NASDAQ
SICs: 5621 Women’s Clothing Stores

Gantos, Inc. is a nationwide retailer of women’s clothing and accessories. The company’s 113 stores are located in upscale malls in 23 states. Gantos’s primary customers are women aged 30-50 who are shopping for moderate to higher priced, career-oriented clothing. Over the 65 years since the company’s founding, Gantos stores have built a reputation for providing a range of quality merchandise and a high level of customer service.

Company Origins

Gantos was founded in Grand Rapids, Michigan in 1932 by Theodore (Ted) and Haseebie Gantos. The Gantoses were Lebanese immigrants who had met and married in Grand Rapids. Ted sold linens door to door in summer resort areas in western Michigan but dreamed of opening his own store. He flirted with his dream briefly in 1929 when he opened a linen store in downtown Grand Rapids, but the Great Depression soon put an end to this fledgling enterprise, which closed after only a few months in business. Three years later the Gantoses were ready to try again. After a few months in a rented store front on Ottawa Avenue in Grand Rapids, the Gantoses moved their small linens business to a tiny eight foot by twenty foot shop on Monroe Avenue, Grand Rapids’ main shopping thoroughfare. By this time an agreement with a hosiery manufacturer allowed Gantos to add hosiery to his stock of fine linens and baby clothes, thus entering the women’s wear market that would become the center of Gantos’s trade.

For the new store’s first five years of operation Ted continued to travel throughout western Michigan, selling his stock of fine linens and tablecloths door to door to help finance the Grand Rapids business. This left Haseebie in charge of all of the day-today operations at Monroe Avenue, including selling, window dressing, accounting, and ordering new stock. Her virtual one-woman operation prospered and, at her suggestion, ladies’ sportswear, lingerie, and blouses were added to their original linen and hosiery inventory. By 1937 annual sales for the store had attained the $10,000 mark and Ted felt secure enough to quit the road and concentrate his energies on the Monroe Avenue venture. By this time, the tiny store had been expanded twice and could boast 500 square feet of floor space. With Ted in charge of the store on a full-time basis, Haseebie, by now the mother of two young sons, could scale back her commitment, although she continued to contribute both her advice and hard work to the concern for the remainder of her life.

Growth in the 1940s and 1950s

The war years were prosperous for the Gantos women’s wear store. Although sales help was difficult to find because of war production jobs and rationing meant that obtaining merchandise often required hours of frustrating travel and calls, Gantos’s persistence paid off and he was often able to provide women with the precious stockings that other retailers had run out of. By the end the war, annual sales had multiplied to $100,000.

By the mid-1940s the Gantos family had grown to include four sons: Douglas, Richard (Dick), David, and Daniel. With the business thriving, Ted Gantos began to formulate what he called his four-D plan in which he envisioned opening a branch store for each of his sons to manage. Although none of the boys were old enough to take over a store in 1949, Gantos proceeded with his expansion plan and opened a new branch on Division Avenue in the Burton Heights district of Grand Rapids. Two years later, in 1951, Gantos opened a third outlet on Coit Avenue in the Creston area on Grand Rapids’ northeast side.

The two branch stores were virtually carbon copies of the original downtown location, carrying the same wide range of ladies hosiery, lingerie, accessories, sportswear, and blouses. The Creston store would add semiformal dresses, suits, and coats to this product mix.

The three Gantos stores were bringing in annual sales of $300,000 when Ted’s eldest son, Douglas, came home from fighting in Korea in 1955 to join the management of the small chain. Douglas urged his father to modernize Gantos’s inventory system. He also insisted that the neighborhood locations of the current Gantos stores were in decline and that shopping centers and malls were going to become the dominant force in the retail world. Father and son fought bitterly over the direction the business should take, according to a company history written in the 1980s. “We were at it every other day,” Douglas said in an interview. “We would be at each other’s throats.” In the end, economics proved Douglas’s point as Ted realized that his neighborhood stores were losing sales to the suburban malls. In 1958, with great reluctance, Ted Gantos closed the original Gantos store on Monroe Avenue in downtown Grand Rapids. Two new small suburban stores were opened in its place, one in Grandville, to be managed by Douglas’s younger brother David, and the other in the Towne and Country Shopping Center on the outskirts of Grand Rapids.

Regional Expansion in the 1960s and 1970s

Douglas Gantos’s campaign to expand into suburban malls was won decisively in 1963 with the opening of a Gantos branch in the Breton Village Shopping Center in the suburbs of Grand Rapids. This new store was designed to have a more upscale look than the traditional Gantos outlets and included the distinctive arch motifs and split levels that were to become characteristic of Gantos store layouts. The merchandise to be carried was also upgraded. The more staid housecoats and lingerie were dropped from the inventory and a broader line of business-oriented suits and formal dresses were introduced. The new look was a hit as sales from Breton Village surpassed those from the four other Gantos outlets in the first year. Following the success of the Breton Village venture, Ted Gantos turned the day-to-day management of the company over to Douglas, who became general manager of all of Gantos’s operations. In 1964 a new Gantos outlet following the Breton Village model was opened in Rogers Plaza, Grand Rapids’ first shopping mall, and within a year total annual sales for Gantos’s stores had reached $1 million.

After opening a still more successful outlet at Eastbrook Mall in Grand Rapids, Douglas Gantos felt that the now established Gantos image of elegantly designed stores and mid-priced, fashionable, yet not extreme, women’s fashions would sell in other cities. Beginning in 1969 the Gantos brothers, now including Douglas, David, and Daniel, began to expand the Gantos concept to other towns in Michigan. This expansion was opportunistic rather than planned as the brothers took advantage of the many new malls opening during the early 1970s. By 1973, there were Gantos stores in Lansing, Kalamazoo, Jackson, Ann Arbor, and Saginaw, Michigan as well as two stores in towns in Indiana. During this same period Gantos developed the concept of the “Bargain Boutique,” whereby marginally profitable Gantos branches were turned into clearance outlets for slow-selling merchandise from the successful stores. This allowed Gantos management to clear unwanted inventory without resorting to image damaging, and margin lowering, clearance sales at their more upscale locations. These bargain outlets would remain a feature of Gantos’s marketing into the 1990s.

During the mid-1970s the somewhat haphazard expansion of the Gantos chain brought the company into difficulties as corporate structure lagged behind expansion. Communication and organizational snags became common and the three Gantos brothers decided that the family company would have to develop a more sophisticated managing strategy if the enterprise were to continue to grow. Richard (Dick) Gantos, the fourth link in the 4-D chain, who had become a professor of mathematics at the University of Wisconsin, agreed to return to the family business following founder Ted Gantos’s death in 1972. Richard was put in charge of the reorganization plan, which included computerization of inventory and accounting, a systematized training program for staff and management, and a division into regional operating units. With this new corporate structure in place, Gantos was ready for further expansion. By 1980 Gantos had opened eight new stores in Detroit and five in the Chicago area to make a total of 30 Gantos branches, with annual sales totaling almost $40 million.

National Expansion in the 1980s

By the mid-1980s the Gantos brothers, still under the leadership of eldest brother Douglas, had opened 20 more stores in the Midwest. Sales were booming and operating margins, notoriously low in the retail clothing industry, rose to more than seven percent. In 1986, the stores brought in revenues of more than $3 million on sales of $77 million. In the wake of five very successful years, in 1986 the Gantos brothers decided to take the company public to raise cash for additional expansion. An IPO of 1.4 million shares netted $11.6 million in a short period of time, and analysts were predicting that the financially strong Gantos firm was set for further impressive growth.

Company Perspectives:

Gantos’ mission is to increase shareholder value by operating a highly profitable, nationwide, retail specialty organization offering a full range of moderate-to-better priced women’s apparel and accessories for the fashion conscious consumer. Our mission will be accomplished by providing, with recognized excellence and dedication, customer service and quality merchandise at price levels which represent real value to our customers. We will continue to treat each and every customer as though she were a guest in our home.

It was around the nature of this expansion that the 55-year-old family firm began to break apart. Douglas Gantos, who had remained president of the company, wanted to take advantage of their current success to expand quickly and across a wide geographic region. Brothers Richard and David felt that a more steady and cautious approach was called for to avoid the cash crunch that would come with over-expansion. Just as in his battle with his father about expansion some 30 years earlier, the domineering Douglas eventually won out. All three of his brothers sold their stock in the company to Douglas in the late 1980s and the eldest sibling was left in sole charge of Gantos, Inc.

Douglas Gantos’s rapid expansion program was an initial success. After a second stock offering raised an additional $20 million in 1989, Gantos was able to double the number of stores in only two years. By 1990, 140 Gantos stores were scattered across the country from New Hampshire to California. In 1989 revenues had mounted to $240 million and earnings reached $7 million, a respectable three percent net return. Gantos stock, which was being touted by analysts as a success story in the making, climbed from $14 to $32 per share. Inevitably, however, the high debt to capital ratio incurred from the new store openings could not be fully counterbalanced by sales gains, particularly since clothing stores are rarely profitable in their first year of operation. By the close of 1990 it became clear that Gantos was in serious trouble. The company had incurred a net loss of $13 million and was unable to generate enough cash flow to meet the interest expense on its mounting debt.

Bankruptcy and Beyond in the 1990s

Pressed by falling sales, growing debt, and plummeting stock Douglas Gantos was forced to retrench and put a halt to further expansion. In an effort to restore stockholder confidence, for the first time in the company’s history an outsider was hired as Gantos president in the spring of 1992. The new president, Michele Fortune, set out to close unprofitable units and cut costs across the board, but her reorganization plan reportedly met with resistance from Douglas Gantos. “When there’s founder involvement like with Doug, the store image is wrapped up in who he is,” Fortune remarked in a 1994 article in Forbes. “When it came down to it, he just wouldn’t close [money-losing] stores.” Disagreements about management policies eventually became irreconcilable and Fortune left Gantos in 1993 after barely a year on the job.

With Fortune’s departure, Douglas once again took over management of the troubled firm. Despite sales gains in 1991 and 1992, however, Gantos was unable to emerge from accumulated debt. To compound the company’s problems, the merchandise decisions made for the summer season of 1993 proved disastrous and Gantos stores were forced to take large markdowns on fashions that would not sell. By the fall of that year it became clear that the company was headed for a record loss and, with vendors refusing to extend credit, there was no option but to file for protection under Chapter 11 of the Bankruptcy Code.

Under the reorganization plan required by the bankruptcy filing, Gantos closed 50 underperforming stores and reworked the company’s merchandising policy. In the spring of 1995, Gantos’s reorganization was approved by creditors and stock-holders and the company was able to emerge from bankruptcy protection. With the reduced number of stores, sales dropped in 1994 and 1995 but the company was able to return to profitability, with net income rising to $3.7 million in 1995.

In 1996, Douglas Gantos stepped down as CEO of Gantos, Inc., although he retained his position as chairman. Appointed in his place was Arlene H. Stern, a former executive vice-president with the Women’s Specialty Retailing Group. From the perspective of the mid-1990s it remained to be seen whether Stern could restore the struggling Gantos clothing stores to a top position in the retail industry.